Over the years nations – some hostile to U.S. interest – have been using petrodollars and profits from trade surplus with the U.S. to fill their coffers with enormous cash reserves to be used for the sole purpose of buying up U.S. assets.
These sovereign wealth funds typically lack transparency and there is a growing fear that nations such as China, Venezuela, Japan, Iran and others could be amassing these huge funds not to advance their own economic interests inside the U.S., which is detrimental enough to the American economy, but rather to advance political agendas. Some skeptics of sovereign wealth funds believe those cash reserves could easily be used to manipulate state-owned assets to disrupt the U.S. economy or to gain access to sensitive technology.
These funds are growing exponentially. Due to their relative lack of transparency, it is hard to estimate the exact scope and size of some of the funds, however, The Brookings Institute estimates that there are over 40 sovereign wealth funds operating worldwide managing $1.9 trillion to $2.9 trillion worth of global assets. It is predicted that those funds could grow to $10 to $12 trillion by 2015.
Despite the enormous influence these funds have in the U.S., investing $40 billion in the U.S. in 2007 alone, very few of the people that should be asking the tough questions are, especially the Committee on Foreign Investment in the United States.
â€œItâ€™s time to start asking questions about these Wall Street investments,â€ said Sen. Evan Bayh (D-Ind.), who testified earlier this year before a bipartisan committee of analysts, researchers, and academics set up to examine U.S.-China economic and national security issues. â€œCFIUS has largely been a toothless watchdog.â€
Indeed, since 1988 the organization has reviewed over 15,000 notifications of takeovers, acquisitions and mergers. Of those, the organization had launched just 25 investigations, and 13 of those foreign companies pulled-out after learning they would be subjected to a full investigation. Of the remaining 12, only one acquisition was stopped by the president at the time.
The U.S. is in dire need of a change in its foreign investment policy – the stakes are much too high.
“A lack of transparency that characterizes many sovereign wealth funds undermines the theory of efficient markets at the heart of our economic system,” said Bayh. “Unlike private investors, pension funds and mutual funds, government-owned entities may have interests that will take precedence over profit maximization.”
The CFIUS needs to better scrutinize purchases of U.S. assets in the future, especially those by sovereign wealth funds. It should also demand more accountability and transparency in any sovereign wealth fund looking to invest in the U.S. to ensure that their motives are in no way nefarious economically, politically or socially.
Government-controlled wealth funds, worth $2 trillion and growing fast, are muddling the debate over how the United States can attract foreign investment without sacrificing national security.
At the center of the regulatory discussion is CFIUS, the Treasury Department-led Committee on Foreign Investment in the United States, which was thrust into the spotlight last year with the political firestorm surrounding Dubai Ports World’s DPW.DI purchase of a British company that owned U.S. ports.
Source: Economy in Crisis
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